Editorial

NAR roundtable examines state of Fannie, Freddie reform

With America’s homeownership rate struggling to match falling unemployment and increasing consumer confidence, protecting the benefits of the secondary mortgage market remains critical to the health of the overall housing industry.

The National Association of Realtors hosted a roundtable event June 22 examining the scope and status of comprehensive Government-Sponsored Enterprise reform, moderated by Realtors Larry Black and Seth Task, chair and vice chair of NAR’s Conventional Finance and Policy Committee.

Isaac Boltansky, director of policy research with Compass Point, opened the event. “It’s deplorable that Congress has left the GSEs in conservatorship for 10 years, but it isn’t all bad news. There have been meaningful administrative improvements that have made the system safer and have advanced the debate,” Boltansky said.

“As a result, the broader policy conversation has shifted from a consideration of remaking the mortgage finance system to an acceptance that a package of narrower reforms could suffice. Effectively, we’ve gone from consideration of tearing down the whole house for a rebuild to the belief that we should just tweak the house’s plumbing and do some landscaping.”

Fannie Mae and Freddie Mac currently play a key role in the secondary mortgage market, which provides the majority of capital for mortgage lending. During the housing finance sector’s collapse, private capital withdrew from the market. Without support from the GSEs and the Federal Housing Administration, the recession could have been much worse.

However, GSEs also play a critical role in good economic times. By providing liquidity and access to affordable mortgage financing for credit worthy borrowers, GSEs help a broad swath of middle-income Americans achieve homeownership.

Since the recession, two administrations and multiple congresses have worked to reshape the entities, which have been productive but have ultimately failed to complete the transition.

David Dworkin, president and CEO of the National Housing Conference, commented on the necessity, and corresponding complexity, of enacting comprehensive housing finance reform.

“Housing finance reform remains the single largest unfinished business of the housing crisis. The failure of Fannie Mae and Freddie Mac, the taxpayer bailout and repayment that followed, and their unresolved conservatorship continue to demand final resolution, even if Congress does not,” he said.

“However, if we want a mortgage finance system that preserves the fundamental element that sets us apart from the rest of the world while providing the only meaningful wealth creation tool available to low- and moderate-income Americans, then [mortgage finance reform is] going to be an incredibly complex exercise, with enormous transition and counterparty risks and incalculable unintended consequences,” Dworkin added.

The event came a day after the White House released its Reform Plan and Reorganization Recommendations, which included a proposal to remove the federal charter from statute and fully privatize the GSEs. Specifically, the Trump administration called on policymakers to decrease the federal subsidies supporting housing by reducing the role of Freddie Mac and Fannie Mae in the housing market.

Panelist Kent Smith, portfolio manager of mortgage credit at PIMCO, addressed the topic of private or multiple guarantors. “They won’t deliver lower rates to the market, the quality of the (government) guarantee will,” he said.

NAR President Elizabeth Mendenhall, a sixth-generation Realtor from Columbia, Missouri, and CEO of RE/MAX Boone Realty, also commented on the administration’s proposal.

“Realtors support reforms that will put Fannie Mae and Freddie Mac on the path to sustainability,” she said. “However, it is critical to America’s housing industry and a priority of NAR that affordable mortgage capital always remains available for creditworthy Americans, particularly during economic downturns, a vital role that a fully private entity could not fill.

“This makes efforts to reform the secondary mortgage market all the more necessary. NAR will continue to advocate that Congress enact comprehensive housing finance reforms as quickly as possible.”

Several additional industry leaders, policy advisors and academic experts spoke during different sections of the roundtable. Additional topics of conversation included barriers to the adoption of current comprehensive reform proposals, complexities of attaining a consensus and near-term changes that could threaten market liquidity.